Business jet sales have not taken off with soaring corporate profits

LAS VEGAS (Reuters) - Two quarters of soaring U.S. corporate profits have not yet produced the “Trump bump” in orders for new business jets that some industry executives had been hoping for, analysts said as a major business aviation gathering opened on Tuesday.

Bombardier's new Global 7000 business jet is seen during the National Business Aviation Association conference and expo at the Henderson Executive Airport in Henderson, Nevada, U.S., October 8, 2017. REUTERS/David Becker

A hefty supply of used aircraft has limited demand for new jets, forecasters said. Deliveries of new planes are seen staying flat until 2019 even though profits on the S&P 500 have grown at a double-digit rate over the last two quarters.

Record corporate profits are “a necessary condition for greater new business jet deliveries, but not sufficient,” said Gaetan Handfield, senior manager, market research for the aerospace division of parts supplier Honeywell International Inc. (HON.N)

While the supply of preowned corporate jets is declining, prices have not recovered, said Handfield, who expects annual growth of 3-4 percent in business jet sales between 2019-2027, in line with global GDP growth.

Handfield noted the growing importance of international markets. The United States now accounts for just 60 percent of new business jet deliveries, down from 75 percent in the early 1990s, he said.

Honeywell forecast on Sunday that business jet deliveries would pick up in 2019 after declining by about 30 aircraft this year. .

Manufacturers had hoped business jet sales would take off with the election of U.S. President Donald Trump, a jet setting Republican billionaire who promised tax cuts for corporations. Instead, private planes have come under fire in some quarters as a sign of excess.

The National Business Aviation Association’s (NBAA) convention opened in Las Vegas under heightened security, with bag and identity checks required following the mass shooting this month.

Brad Nolen, vice president, marketing for business aircraft at Canada’s Bombardier Inc (BBDb.TO) said he has not seen a backlash over corporate jet use. He noted that the inventory of pre-owned business jets soared as high as 18 percent following the financial crisis.

“If you saw almost one in five houses for sale it would not be a good time to be selling,” he said. “So today it’s more like one in 10 which is a much more natural, much more healthy number.”

Bombardier is building 135 business jets this year, after scaling back in previous years, he said. The industry is seeing some uptick in orders, but that has not yet translated into a bump in deliveries.

“We’re seeing orders steadily rise, but not to the point where manufacturers have yet decided to increase production,” Nolen said.